Looking for home loan? 10 reasons why your loan application may get rejected

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Updated: February 16, 2017 1:36:07 PM

More and more people are aspiring to purchase property. Property prices are going up, banks are fighting the increasing number of NPAs, and getting a home loan can be a challenge even if you have chanced upon your dream house.

Banks consider various factors in loan applicants and offer loans only to those who are likely to repay the loan in time.Banks consider various factors in loan applicants and offer loans only to those who are likely to repay the loan in time.

More and more people are aspiring to purchase property. Property prices are going up, banks are fighting the increasing number of NPAs, and getting a home loan can be a challenge even if you have chanced upon your dream house.

Banks consider various factors in loan applicants and offer loans only to those who are likely to repay the loan in time.

And remember every time you face a home loan rejection, you may be tempted to apply for another loan. The aggregate of these loan applications will reveal your credit-hungriness, which will drive down your credit score. So in order to avoid entering a vicious cycle of loan rejection, keep yourself informed about the reasons you could face rejection. Below is a list of top reasons why you might face rejections.

1: Unstable employment
Banks and NBFCs consider stable employment as one of the top parameters to ascertain your ability to make timely repayments. Some banks even insist that the borrower be employed with the same company for a period of at least three or more years to be found eligible. People with low work experience, contractual jobs, or those changing employers frequently, are at a higher risk of facing home loan rejection.

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2: Poor credit score
The applicant’s credit history is an essential factor in determining loan approval. A bad credit score indicates poor repayment habits attracting home loan application rejection. Whether it is due to negligence or insufficiency of funds, if repayment is delayed repeatedly, the credit score deteriorates and stays that way unless amends are made. Once a home loan is rejected due to poor credit scores, the chances of getting a loan in future will reduce further. As such, lending institutions consider a credit score above 750 desirable among prospective borrowers.

3: Irregularity in filing ITR
Even with a good credit score and regular income, banks may decline your home loan request if there is irregularity in filing income tax returns. For example, if you have filed ITRs for more than one year within a short time span, it may appear to have been done just to seek home loan approval. Unless such ITRs are attached with tax payments, they may be viewed unfavourably by the lender.

4: Job profile involves working in risky conditions
Banks are less likely to offer loans to individuals involved in hazardous jobs. Such jobs are considered life threatening, thus reducing the likelihood of repayment of loans. For example, journalists stationed in high-risk regions to cover war, riots, etc., or employees working in factories involving work with boilers or chemicals, may find it tough to get home loan approval.

5: Under valuation of property
Banks and NBFCs do a valuation of the property for which loan is being asked for. If they find the value of the property to be too low or unsatisfactory to offer a loan for, there is a chance that you may face rejection. Make sure you find a house valued close to the market price.

6: Legal issues in property documents
Any unsettled legal issues associated with the property in concern can be a reason for banks to reject your loan application. Banks go through all past records of the property to ensure that the property has a marketable and clear title.

7: Unapproved builders
Even if your personal details are in place, you may face rejection if your bank is not happy with the builder. Banks scrutinize builders and projects based on various parameters and if you are seeking loan for a property developed by a builder not approved by the bank, the chances of rejection are high.

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8: Processing fee cheque
Banks charge a home loan processing fee between 0.25 and 1% of the loan amount. If your home loan processing fee cheque gets dishonored due to any reason, banks may reject your loan application.

9: Age and eligibility criteria
Banks may even deny you loan if your age doesn’t fall within the eligible range. For example, if you are nearing retirement or would retire during the loan tenure, banks reserve the right to reject your loan application as they perceive uncertainty over loan repayment.

10: Residential address on defaulters list
If your address is found on the defaulters list with the national credit bureau due to a family member or tenant, you might be denied a loan. This could be due to defaulting on loans or credit cards. To avoid a loan rejection on this account, you must report to the bank before applying for a loan.

(The author is CEO, BankBazaar)

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